Burger King in Talks to Buy Tim Hortons — Sources

Liz Hoffman and Dana Mattioli reported that Burger King Worldwide Inc. was in discussions to buy Canadian coffee-and-doughnut chain, Tim Hortons Inc. The deal will be structured as a tax inversion deal and would move the hamburger seller’s domicile abroad. The takeover would create the third-largest quick-service restaurant provider in the world. Later Sunday night, the companies confirmed talks.

Burger King Worldwide Inc. is in talks to buy Canadian coffee-and-doughnut chain Tim Hortons Inc., a deal that would be structured as a so-called tax inversion and move the hamburger seller’s domicile abroad, according to people familiar with the matter.

The two sides are working on a deal that would create a new holding company based in Canada, one of the people said, adding that the takeover would create the third-largest quick-service restaurant provider in the world.

One of the people said a deal between the two companies could be struck soon, though additional details on timing couldn’t be learned. Together the restaurant companies have a market value of about $18 billion.

By moving to a lower-tax jurisdiction, inversion deals enable companies to save money on foreign earnings and cash stowed abroad, and in some cases lower their overall corporate rate too.

But because they threaten to deplete U.S. government coffers, they have drawn stiff opposition in Washington, and efforts are underway to limit their use. In one of those, the Treasury Department recently said it’s assembling a list of options to deter or prevent the deals for Secretary Jacob Lew to consider.

A move by Burger King to invert is sure to intensify criticism of the deals, considering what a well-known and distinctly American brand it is.

In the current wave of such deals, most inversions have been struck by healthcare companies. One by Burger King would suggest that the deals have wider appeal beyond healthcare, as companies from a range of industries consider ways to become more competitive from a tax perspective.

Burger King was founded in 1954 with a single restaurant in Miami, where it’s now based. It has since grown to be the world’s second-largest fast food hamburger chain, according to the company’s website. There are more than 13,000 Burger King locations in nearly 100 countries, serving more than 11 million people daily, the web site says.

Tim Hortons, based in Oakville, Ontario, is well-known for its coffee, a high-margin area where U.S. fast food giants have raced to grab market share. Burger King has been adding more coffee items and flavors to its menus in order to catch up with arch-rival McDonald’s Corp., which has had success with a specialty coffee line called McCafe. Burger King paired up with Seattle’s Best Coffee, a brand owned by Starbuck’s Corp., to help its effort gain traction.

The brands would be managed separately under a Burger King-Tim Hortons deal, one of the people said.

Tim Hortons has shares that trade in the U.S. and Canada and a market capitalization of about $8.4 billion. Last year, hedge funds Scout Capital Management LLC and Highfields Capital Management LP announced stakes in the company and called for Tim Hortons to curtail its U.S. expansion plans and increase its leverage to buy back more shares.

In 2010, Brazilian private-equity firm 3G Capital Management bought Burger King and took the chain known for its Whopper burgers private. A few years later, the company structured a complex deal with an investment vehicle co-owned by activist shareholder William Ackman to go public again. The company now has a market capitalization of about $9.6 billion.

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